How Bosch broke free from silos to reorganize as agile teams

One of the key elements I keep banging on about in digital transformation — or the move to frictionless enterprise as I prefer to call it — is the importance of cross-functional teamwork. The need to break free of functional silos and devolve decision-making to a network of agile teams was a big theme of my talk at last year's Unleash conference in Amsterdam. Then I walked into another session the next day at the same event to discover that this is exactly what power tool maker Bosch has done.

With 21,000 employees, the power tool division of German engineering and electronics giant Bosch is a global market leader in both the DIY and professional markets with its Bosch and Makita brands. But the advent of Amazon and online shopping brought big challenges. Suddenly consumers had a lot more choice and control. The business needed to become more agile, explains Rosa Lee, Senior Vice President of Global HR at Bosch:

They said, 'Speed is the buzzword — we need to act like 21,000 startups.'

Breaking free from the old silos

The power tools business therefore swept away its traditional hierarchical organization, abolishing all the old silos and a 7-layer hierarchy. In its place Bosch created a matrix of small business teams of 5-11 people each, all reporting into a management board for their business unit. Across the entire home and gardens business unit — essentially the DIY product division — there are 54 of these teams. Most are 'purpose teams' charged with product sets that share a specific purpose, such as fixing, hedgecare or cleaning, while others are 'excellence teams' dedicated to a specific expertise, such as brand management, engineering services, compensation and rewards, and so on.

This enormous change swept away the previous management hierarchy and created a need for an entirely new approach to talent management:

In the traditional five or seven hierarchical levels, if I'm a manager, I want to be a director one day. If I'm a director, I want to be a vice-president one day. All of a sudden, all these are gone. Everyone's equal. We're five, six, seven people [in a team] all at the same level.

This requires new ways to deal with issues such as recruitment, evaluating performance, setting compensation, skills development and so on. For example, how does a team manage staffing? This is a different landscape, as Lee explains:

In an agile team environment, the manager is not the guy who knows what is missing, what contribution is not being addressed by what kind of competency. Only the team knows.

Innovation in the HR function

Bosch set up an HR Lab function to develop innovative HR solutions to support those new processes. Its remit is to enable agile transformation, foster a self-determined environment across teams, and create user-centric HR products. In the case of team staffing, the HR Lab set up a flexible process for teams to define the competencies and candidate profile they're looking for, and then to collaborate with HR and management to fill the vacancy. It also proved popular with the HR Lab software developers based in Berlin, she says:

The software guys who run projects [that last] seven or eight months, if they waited at the year-end for a manager — which is not existing anymore — to do an annual year-end performance appraisal, it has no meaning. So in Berlin, they don't do our old performance management system anymore. They love this new team staffing process.

Another example is the replacement of annual performance reviews with a process called Individual Development Dialogue (IDD), which puts the employee at the center of a team-based process:

The benefit of the IDD is, it's not a manager deciding what kind of development he wants to give to me. I as an employee drive my own development dialogue.

So it's not a once-per-year, manager-driven appraisal. It's not an assessment. [It's] about feedback on my contribution to the team goals. We talk about contribution, we don't talk about assessment ... It's a team goal, and team-based contribution.

Teams decide their own compensation

Adapting to this type of change does require a strong commitment in the culture of the organization, and some teams or team members take longer to adapt than others, says Lee. Managers must be ready to let go of the "special powers" they had before as they are devolved to teams. It's also important to give teams time to get used to their new responsibilities. When the HR Lab first sought to have teams set their own compensation levels, the pilot users didn't want that capability, says Lee:

When HR Lab handed over the prototype, the team said, 'No no no, we're not ready. We're still not ready to decide our salaries, we cannot decide by ourselves about who gets what kind of pay.' So that was our first try.

Having rolled out the IDD process, teams have become used to collaborating over each member's contribution, and the second attempt to devolve compensation management has been more successful. Following the principle of the self-organized team, the team can also propose its own overall compensation budget.

The overall philosophy in the HR Lab is to adapt the mantra of "zero distance to customers" and apply it internally to the relationship between the HR function and employees. When meeting the diverse needs of a business that employs over 400,000 across Bosch as a whole, that means being prepared to offer a choice, she adds:

One size fits all means one size hits all. Zero distance to customers should also apply to HR and we need more than just one HR solution. I would not say we need ten HR solutions — but definitely we need more than one.

My take

It was quite unexpected to discover this kind of radical transformation is already taking place, not at some digital startup, but at the power tools division of a 132-year-old German industrial giant. But it's a natural consequence of digitalization, and it's one of a growing number of examples where the old corporate hierarchies are giving way to cross-functional digital collaboration.

I've previously charted the adoption of very similar agile teamwork at global banking giant ING. This is a difficult path to follow for such large, established companies. Younger businesses find it easier, such as budget airline AirAsia, which fostered a collaborative, cross-functional culture from the start, or digital challenger bank Monzo, which runs many aspects of its business on the Slack messaging platform, such as onboarding new staff.

Note that none of these four examples are from the heartlands of Silicon Valley or the technology industry. This is a sign that, though still at an early stage of adoption, the shift to frictionless enterprise is a global phenomenon.

This poses big challenges for HR teams, of course, although that's in part because it puts HR right at the leading edge of making these new organizational structures work. Understanding how to enable cross-functional working and digital collaboration will, I believe, become a core competency of enterprise HR teams. That's a topic I'll be expanding on when I return to speak at the Unleash event in London next month.